Monday 7 July 2008 19.01 EDT
First published on Monday 7 July 2008 19.01 EDT

The public's appetite for weekend breaks and holiday trips on low-cost airlines remains undiminished despite the downturn in the economy, easyJet said yesterday, as it reported strong demand for budget flights last month.

Europe's second-largest no-frills airline, which carried nearly 38 million passengers last year, reported a 19.5% increase in travellers in June to 4.1 million.

However, with much of that increase due to a growing fleet and the recent acquisition of GB Airways, it was the passenger load factor - the proportion of seats sold per flight - that showed continued strength in the short-haul flight market.

Last month's load factor, compared with the same downturn-free period last year, was up slightly at 86.9%.

Strong demand is one of the few positive points for an airline industry that is facing an unprecedented rise in costs due to an oil price of more than $140 a barrel. The rise in the price of crude now threatens to push the entire sector into a loss of more than $6bn (£3bn) this year.

EasyJet and rival Ryanair, two of the world's most profitable carriers, cannot make a profit if the oil price stays at this level, according to analysts. EasyJet's director of communications, Toby Nicol, said fuel costs had doubled from £10 a passenger last year to £20.

"Those airlines which are in the market this summer will have another good few months in terms of revenue, but it will not be enough to cover the costs," he said. Ryanair said last week its load factor had dipped by a percentage point to 84% in June, but the figure did not concern analysts who expect budget carriers to report load factors in the mid-80s, with the odd fluctuation every month.

Budget carriers prioritise keeping their aircraft in the air as much as possible, while filling them with as many passengers as they can, allowing the airline to wring extra profits from add-ons such as car hire deals and baggage check-in fees.

Yields, or the average ticket price, are the key factor in filling up budget flights as fares are set at a low enough level to tempt leisure travellers.

"EasyJet has yield management systems that target a level of load factor and the fares are adjusted in order to get there," said Zonnefeld. However, he added, easyJet will struggle to pass on higher fuel costs once the peak summer season has finished. Profits will suffer badly as a result, with income struggling to meet soaring costs.

"It is difficult to see how, given that fuel prices are going up so fast, they will pass it on to the consumer. Just because we have not seen a demand slowdown yet does not mean it is not going to happen."

Two years ago, fuel costs as a proportion of easyJet's revenue stood at 24%. Next year it is expected to hit 36%. EasyJet is scouring its cost base and work methods to trim its annual expenditure. It is now flying planes up to 2% slower on some routes to conserve fuel, saving hundreds of pounds per flight. With 30,000 flights per month, this could save the company tens of millions of pounds each year.